Rogers offers five major energy trends that are likely to take shape and play out in international headlines in 2013.

By
Will Rogers, Guest blogger /
February 1, 2013

Issei Kato/Reuters/File

(Read caption)
An employee of Kansai Electric Power Co. speaks to a reporter as the company's Ohi nuclear power plant reactor No. 3 is seen in the background in Ohi, Fukui prefecture. Economic and security concerns could give the Japanese government continued cover to walk back its nuclear phase out policy in 2013, Rogers writes.

Mexico’s oil industry has been in a perpetual state of decline. In its heyday, the country was the world’s second largest oil producer, just behind the United States. But when the industry was nationalized in the 1930s, it all began to go south. Private foreign companies – with their capital, skills and technology – left the country and spent years seeking compensation from the government to cover their losses. In their place, the industry was left with the state-owned Petróleos Mexicanos – Pemex. Unfortunately, Pemex never quite brought the same resources to bear as its foreign competitors and has been plagued by technical deficiencies that have contributed to poor management of its oil fields and their subsequent decline. One need only look to Mexico’s Cantarell super-giant oil field as a case in point: production has sharply declined from about 2 million barrels a day (mbd) in 2004 to 400,000 barrels a day in April 2012. It bodes poorly for a government that relies on oil revenue for roughly 35 percent of its budget. (Read More: Newly Found Mexican Oil Source Could Hold 1 Billion Barrels)

But all that is starting to change and Mexico’s moribund oil industry may be on the rebound. Since his election in July, Mexican President Enrique Peña Nieto started the move toward privatization of the oil industry, which would help bring the necessary capital, technology and skills to onshore oilfields that have been in decline and the deepwater oil fields that have effectively gone untapped. If the industry does turn around, Peña Nieto may singlehandedly be responsible for unleashing the country’s energy potential, potentially adding as much as 1.6 mbd of petroleum to North American output by 2020.

In December 2012, the Canadian government paved the way for CNOOC to acquire the Calgary-based energy giant, Nexen Inc.,including the company’s high-tech ultra deepwater drilling technology, which would add to CNOOC’s technological edge in deepwater drilling. The deal still faces some scrutiny from the U.S. Congress over Nexen’s Gulf of Mexico assets. Regardless though, as China continues to develop its edge in deepwater drilling technology, it will speed up the country’s ability to drill in deepwater blocs, adding a new layer of complexity to the South China Sea imbroglio. In particular, it may undermine the growing push for joint energy development as a regional rule of the road – especially if not longer needs to partner with foreign companies to drill to what was once unreachable depths.

3) India increasingly focuses on energy development in the South China Sea as part of its “Look East Policy.”

Not surprisingly, New Delhi has sought joint development with countries in the region, including Vietnam, as a feature of its strategic engagement with countries eastward. But India’s foray into the South China Sea has drawn China’s ire, which has protested India’s recent joint ventures with the Vietnam National Petroleum Corporation. To show its objections, CNOOC opened up blocs in the South China Sea for bidding last year that Vietnam had already contracted to India’s offshore company, ONGC Videsh. More recently, Chinese fishing boats blocked a Vietnamese seismic vessel in December, causing the ship’s cables to snap. The episode provoked a response from the Indian government, which said it would “consider sending navy vessels to protect its interests in the South China Sea.” This may lay the groundwork for a greater Indian naval involvement in the South China Sea in 2013; it is something worth watching.

The West African country has been increasingly plagued by increased political instability tied to the government’s changing policy on fuel subsidies and bombings by the militant Muslim group Boko Haram. Now Nigeria appears to be dealing with increased piracy off its coast, where suspected Nigerian pirates have seized oil tankers and stormed drilling platforms. The Wall Street Journal reported in December 2012 that Nigeria has emerged as the new center for African piracy, rivaling Somalia; attacks off Nigeria’s coast jumped from 10 in 2011 to 27 in 2012.

The growing instability in Nigeria could contribute to higher energy prices globally. Nigeria is Africa’s largest crude oil producer (and fourth largest exporter of crude oil to the United States). The government aims to increase oil production from around 2 million barrels a day to 2.5 million barrels a day in 2013. But production could be halted by increased political instability driven in part by increased attacks from Boko Haram and piracy. Moreover, continued political instability could drive away foreign investment in the country’s energy sector. A report in December 2012 found that Nigeria could experience an estimated 40 percent decline in oil production by 2020 unless international energy companies sustain their investments in the country’s oil and gas sector.

Economic and security concerns could give the Japanese government continued cover to walk back its nuclear phase out policy in 2013. In December, The Wall Street Journal reported that Tokyo could “reopen nuclear plants that pass stringent safety tests and consider allowing 40-year-old plants to remain open.” Watch for this policy to continue to take shape in 2013. It could have direct implications in U.S. LNG export policy given that Japan is a natural – and large – market for liquefied natural gas. Without that demand, the economic case for exporting LNG may be undermined, putting a greater onus on the U.S. government to begin conversations with the South Koreans, Singaporeans and other potential markets for U.S. energy.